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Since the late 1970’s, in the face of a severe loss of market share in

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Since the late 1970’s, in the face of a severe loss of market share in  [#permalink]

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New post Updated on: 21 Aug 2019, 06:10
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Since the late 1970’s, in the face of a severe loss of market share in dozens of industries, manufacturers in the United States have been trying to improve productivity—and therefore enhance their international competitiveness—through cost-cutting programs. (Cost-cutting here is defined as raising labor output while holding the amount of labor constant.) However, from 1978 through 1982, productivity—the value of goods manufactured divided by the amount of labor input—did not improve; and while the results were better in the business upturn of the three years following, they ran 25 percent lower than productivity improvements during earlier, post-1945 upturns. At the same time, it became clear that the harder manufactures worked to implement cost-cutting, the more they lost their competitive edge.

With this paradox in mind, I recently visited 25 companies; it became clear to me that the cost-cutting approach to increasing productivity is fundamentally flawed. Manufacturing regularly observes a “40, 40, 20” rule. Roughly 40 percent of any manufacturing-based competitive advantage derives from long-term changes in manufacturing structure (decisions about the number, size, location, and capacity of facilities) and in approaches to materials. Another 40 percent comes from major changes in equipment and process technology. The final 20 percent rests on implementing conventional cost-cutting. This rule does not imply that cost-cutting should not be tried. The well-known tools of this approach—including simplifying jobs and retraining employees to work smarter, not harder—do produce results. But the tools quickly reach the limits of what they can contribute.

Another problem is that the cost-cutting approach hinders innovation and discourages creative people. As Abernathy’s study of automobile manufacturers has shown, an industry can easily become prisoner of its own investments in cost-cutting techniques, reducing its ability to develop new products. And managers under pressure to maximize cost-cutting will resist innovation because they know that more fundamental changes in processes or systems will wreak havoc with the results on which they are measured. Production managers have always seen their job as one of minimizing costs and maximizing output. This dimension of performance has until recently sufficed as a basis of evaluation, but it has created a penny-pinching, mechanistic culture in most factories that has kept away creative managers.

Every company I know that has freed itself from the paradox has done so, in part, by developing and implementing a manufacturing strategy. Such a strategy focuses on the manufacturing structure and on equipment and process technology. In one company a manufacturing strategy that allowed different areas of the factory to specialize in different markets replaced the conventional cost-cutting approach; within three years the company regained its competitive advantage. Together with such strategies, successful companies are also encouraging managers to focus on a wider set of objectives besides cutting costs. There is hope for manufacturing, but it clearly rests on a different way of managing.

The author of the passage is primarily concerned with

(A) summarizing a thesis
(B) recommending a different approach
(C) comparing points of view
(D) making a series of predictions
(E) describing a number of paradoxes


2. It can be inferred from the passage that the manufacturers mentioned in line 2 expected that the measures they implemented would

(A) encourage innovation
(B) keep labor output constant
(C) increase their competitive advantage
(D) permit business upturns to be more easily predicted
(E) cause managers to focus on a wider set of objectives


3. The primary function of the first paragraph of the passage is to

(A) outline in brief the author’s argument
(B) anticipate challenges to the prescriptions that follow
(C) clarify some disputed definitions of economic terms
(D) summarize a number of long-accepted explanations
(E) present a historical context for the author’s observations


4. The author refers to Abernathy’s study (line 36) most probably in order to

(A) qualify an observation about one rule governing manufacturing
(B) address possible objections to a recommendation about improving manufacturing competitiveness
(C) support an earlier assertion about one method of increasing productivity
(D) suggest the centrality in the United States economy of a particular manufacturing industry
(E) given an example of research that has questioned the wisdom of revising a manufacturing strategy


5. The author’s attitude toward the culture in most factories is best described as

(A) cautious
(B) critical
(C) disinterested
(D) respectful
(E) adulatory


6. In the passage, the author includes all of the following EXCEPT

(A) personal observation
(B) a business principle
(C) a definition of productivity
(D) an example of a successful company
(E) an illustration of a process technology


7. The author suggests that implementing conventional cost-cutting as a way of increasing manufacturing competitiveness is a strategy that is

(A) flawed and ruinous
(B) shortsighted and difficult to sustain
(C) popular and easily accomplished
(D) useful but inadequate
(E) misunderstood but promising



Originally posted by gmatcrook on 27 Jun 2008, 11:40.
Last edited by SajjadAhmad on 21 Aug 2019, 06:10, edited 2 times in total.
Updated - Complete topic (254).
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New post 27 Jun 2008, 17:29
1
Notes:
Para 1: Historical context. Cost cutting.
Para 2: Paradox of historical cost cutting.
Para 3: Specific example. Abernayth’s study. Tie innovation to cost cutting.
Para 4: Author’s point. Manufacturing strategy.

1. The author of the passage is primarily concerned with
(A) summarizing a thesis
(B) recommending a different approach
Correct. Passage says in para 4 “There is hope for manufacturing, but it clearly rests on a different way of managing”
(C) comparing points of view
(D) making a series of predictions
(E) describing a number of paradoxes


2. It can be inferred from the passage that the manufacturers mentioned in line 2 expected that the measures they implemented would
(A) encourage innovation
(B) keep labor output constant
(C) increase their competitive advantage
Correct. Passage says “been trying to improve productivity—and therefore enhance their international competitiveness—through cost-cutting programs”
(D) permit business upturns to be more easily predicted
(E) cause managers to focus on a wider set of objectives


3. The primary function of the first paragraph of the passage is to
(A) outline in brief the author’s argument
(B) anticipate challenges to the prescriptions that follow
(C) clarify some disputed definitions of economic terms
(D) summarize a number of long-accepted explanations
(E) present a historical context for the author’s observations
Correct. Author is emphasing “cost cutting” in 1970s.


4. The author refers to Abernathy’s study most probably in order to
(A) qualify an observation about one rule governing manufacturing
(B) address possible objections to a recommendation about improving manufacturing competitiveness
(C) support an earlier assertion about one method of increasing productivity
(D) suggest the centrality in the United States economy of a particular manufacturing industry
(E) given an example of research that has questioned the wisdom of revising a manufacturing strategy
Correct. Study questions “cost cutting”.

5. The author’s attitude toward the culture in most factories is best described as
(A) cautious
(B) critical
Correct. Author says we need alternative approach.
(C) disinterested
(D) respectful
(E) adulatory


6. In the passage, the author includes all of the following EXCEPT
(A) personal observation
(B) a business principle
(C) a definition of productivity
Correct. Rest all are discussed in different paragraphs.
(D) an example of a successful company
(E) an illustration of a process technology


7. The author suggests that implementing conventional cost-cutting as a way of increasing manufacturing competitiveness is a strategy that is
(A) flawed and ruinous
Correct. Para 2 says “cost-cutting approach to increasing productivity is fundamentally flawed”
(B) shortsighted and difficult to sustain
(C) popular and easily accomplished
(D) useful but inadequate
(E) misunderstood but promising

Please post the OAs.
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New post 28 Jun 2008, 10:57
I got this one wrong.

My reasoning behind 4 would be the immediate earlier statement made by the author:
(I know! I myself was thinking later on - How did I miss this one?)

"the cost-cutting approach hinders innovation and discourages creative people" - Assertion made by the author.

This cost-cutting approach is the method adopted to improve productivity.

Option C states this clearly.

Am I right fresinha12.
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New post 28 Jun 2008, 11:07
The 7th one.

B states that the cost-cutting as a strategy is short-sighted and difficult to sustain.

Is it Short-sighted? Yes
Is it difficult to sustain? No.

The author states at the end of the 2nd paragraph -"...The final 20 percent
rests on implementing conventional cost-cutting. This rule does not imply that cost-cutting should not be tried.
"
Also at the end of the last paragraph the author states, "Together with such strategies, successful
companies are also encouraging managers to focus on a wider set of objectives besides cutting costs.
"

Thus, D sums it up correctly. Cost-cutting as a strategy that is useful and inadequate which means that in addition to cost-cutting we would require something else as well.
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New post 28 Jun 2008, 12:39
you got it..
i re-read 7..and i can agree with D..but also at the sametime i feel B is also correct..isnt the whole point of bringing up the detroit example..they are focused on cost cutting and now cannot sustain that since it has become a vicious circle..



gmatcrook wrote:
I got this one wrong.

My reasoning behind 4 would be the immediate earlier statement made by the author:
(I know! I myself was thinking later on - How did I miss this one?)

"the cost-cutting approach hinders innovation and discourages creative people" - Assertion made by the author.

This cost-cutting approach is the method adopted to improve productivity.

Option C states this clearly.

Am I right fresinha12.
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New post 13 Apr 2009, 23:00
I am getting BCEBBEA

5. This dimension of performance has until recently sufficed as a basis of evaluation, but it has created a penny-pinching, mechanistic culture in most factories that has kept away creative managers.--------> suggests author is critical of the culture prevalent in most factories. Is he cautioning anybody? No. I think he is merely criticizing.

6.
(A) personal observation ---> Every company I know that has freed itself from the paradox has done so, in part, by developing and implementing a manufacturing strategy
(B) a business principle-----> 20 20 40 rule
(C) a definition of productivity ------> given in 1st para
(D) an example of a successful company-------> cited in last para
(E) an illustration of a process technology--------> could not fine one

7. ------> is supported by 2nd para ------> it became clear to me that the cost-cutting approach to increasing productivity is fundamentally flawed
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New post 14 Apr 2009, 00:22
1 B 07:52
2 C 01:03
3 E 01:08
4 B 01:32
5 C 01:29
6 B 00:49
7 B 01:05

rampuria wrote:
5. This dimension of performance has until recently sufficed as a basis of evaluation, but it has created a penny-pinching, mechanistic culture in most factories that has kept away creative managers.--------> suggests author is critical of the culture prevalent in most factories. Is he cautioning anybody? No. I think he is merely criticizing.

6.
(A) personal observation ---> Every company I know that has freed itself from the paradox has done so, in part, by developing and implementing a manufacturing strategy
(B) a business principle-----> 20 20 40 rule
(C) a definition of productivity ------> given in 1st para
(D) an example of a successful company-------> cited in last para
(E) an illustration of a process technology--------> could not fine one


Good job

I plan to object the OA of question 4, but I suddently find this:
"..But the tools quickly reach the limits of what they can contribute."

the cost-cutting approach hinders innovation and discourages creative people. As Abernathy’s study of automobile manufacturers has shown, an industry can easily become prisoner of its own investments in cost-cutting techniques, reducing its ability to develop new products.

4. The author refers to Abernathy’s study (line 36) most probably in order to

(A) qualify an observation about one rule governing manufacturing
(B) address possible objections to a recommendation about improving manufacturing competitiveness
(C) support an earlier assertion about one method of increasing productivity
(D) suggest the centrality in the United States economy of a particular manufacturing industry
(E) given an example of research that has questioned the wisdom of revising a manufacturing strategy

4 makes sense now
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New post 05 Feb 2016, 13:59
How can answer for Q7 is D it should be A as it is flawed in second Paragraph. Kindly help
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New post 20 Apr 2017, 21:25
vketaraju wrote:
How can answer for Q7 is D it should be A as it is flawed in second Paragraph. Kindly help


I struggled on Q7 between A and D as well.

The argument states that cost-cutting is definitely flawed and in the very first paragraph it additionally mentions "the harder manufactures worked to implement cost-cutting, the more they lost their competitive edge.", which indicates that the approach will be ruinous, although I know that this word is quite extreme.
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New post 19 Dec 2018, 23:02
6 mins 8 sec ... got 4 out of 7 correct. Frustrating to miss Q4. :-\

Some great discussions on this thread as well - https://gmatclub.com/forum/since-the-la ... fl=similar

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New post 30 Dec 2018, 07:31
Dear workout can you please look into this -

The same passage is present both here as well as here. These two I could find on a quick search

Also, according to my comment above I have attempted the passage on 20th Dec but I am neither able to see timer stats in this topic nor is it present in my error log - maybe I had attempted another merged topic (so there were 4 copies of the same passage!) :-(

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New post 30 Dec 2018, 07:34
1
dave13 wrote:
Gladiator59 wrote:
6 mins 8 sec ... got 4 out of 7 correct. Frustrating to miss Q4. :-\

Some great discussions on this thread as well - https://gmatclub.com/forum/since-the-la ... fl=similar

Best,
Gladi



Gladiator59 i very much doubt of OA in 4th q.


No idea what I had commented - the passage seems to have vanished from my error log (multiple topics issue) as well as my memory... :shocked :dazed :?

Will reattempt this one in a few days when I have completely forgotten about my initial attempt. :-)

Best,
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Re: Since the late 1970’s, in the face of a severe loss of market share in   [#permalink] 30 Dec 2018, 07:34
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